APN shares slump after profit warning

SHARES in troubled APN News & Media dived in early trade after the company warned of a dramatic slump in full year earnings.

APN released a trading update after the stock market closed yesterday, warning weak advertising markets would slice its underlying net profit for calendar 2012 by more than a third.

APN, which owns regional newspapers and radio stations across Australia and New Zealand, shares sank by nine per cent in early trade today.

The stock was 1.5 cents, or 4.8 per cent, lower at 30 cents at 10.49am AEDT.

The trans-Tasman media group had warned that publishing revenue had fallen 10 per cent since June on the back of weaker ad markets.

Morningstar Equities Research analyst Michael Higgins said advertising market conditions were not expected to improve in the short term.

He said APN could be forced to carry out a capital raising and make more writedowns on the value of its newspapers.

"Limited earnings visibility and deterioration in newspaper circulation make it very difficult to determine how the future plays out," Mr Higgins said in a note to clients. "APN has not disclosed covenants, which is a concern."

"A capital raising in the future appears a likely scenario - more so if New Zealand publishing assets can't be sold in the short term."

APN said in its trading update that while $25 million in cost cuts had helped offset some of the falling revenues, its annual earnings before interest, tax, depreciation amortisation (EBITDA) were forecast to drop 28 per cent.

Total EBITDA for calendar 2012, before exceptional items, is forecast to fall to between $150 million and $155 million from $208.9 million in 2011.

Net profit, also before exceptional items, is also expected to drop to $51-54 million in 2012 from $78.2 million in 2011.

APN said its profit result would be hit by an $8 million charge linked to its outdoor advertising joint venture with Quadrant Private Equity.

However the falls in the value of APN's newspapers has also hurt its ability to deduct interest for tax purposes, causing another $5-8 million hit.